You Are Not A-Loan: Student Borrowers and the Scary World of Loans

Loans scare me. Mainly because I know almost nothing about them, besides the fact that they pay my school bills, and also keep me from having to live on a steady diet of Ramen Noodles and Taco Bell. One thing I do know for sure, however, is that American college students have racked up a lot of them – to the tune of almost $1 trillion. Currently, more than 40 million Americans hold some sort of student loan debt. But a number this high does not seem to faze the general American public who has, according to the Consumer Financial Protection Bureau, generated approximately $1.2 trillion in outstanding student loan debt. This translates to 7 in 10 U.S. college seniors who graduated in 2013 with student loan debt, at an average of $28,400 per student (Project on Student Debt).

At RMC, that rate is a little lower, where students graduate with an average debt of $22,544. Some may be surprised to learn that Rocky students are leaving campus with less debt than the typical Montana college student, whose standard debt portfolio sits at approximately $27,568 after four years in school. However, the proportion of RMC seniors who are relying on student loans is still around 73%, which is a substantial number of graduates going out into the world knowing next to nothing about the loan burden that they have taken on – for life.

As with many things, the cure (student loans) might just be worse than the disease (paying for college). Why? Because there are some pretty hefty consequences for defaulting on a student loan, whether it be federal or state issued. Defaulting, or the act of going 9 or more months without making a payment on a student loan, can mean bad, bad news for the unlucky college graduate. For instance (and somewhat ironically), defaulting on education loans can make students virtually unemployable. Not paying back loans can cause a person’s credit score to hit rock bottom, which means that he or she can be deemed unhireable by many employers, and can even be ineligible for some government jobs. As reported by Demos, almost 60% of employers check the credit reports of potential hires. A bad credit score can also affect students in other areas of their lives; buying a house or a car can become almost impossible if a person has bad credit.

In Montana, the Department of Justice has the authority to suspend the drivers’ licensees of people who are in default on their student loans, and in some cases, professional licenses (like those of nurses) can be stripped as well. Also, it is almost impossible for student loan debt to go away unless it is directly paid off by the borrower. Bankruptcy is not an option for students to clear away any educational loans they may have acquired, although things like gambling and credit card debt may be forgiven. They can even follow a person into the grave; even in death, student loans still have to be dealt with, usually by family members.

Considering all of these consequences in the case of default, why are college students still relying on loans to help them pay for school? The answer, it seems, can be summed up in four words: education is worth it. A college education is viewed as the gateway to a higher earning potential, with college graduates making approximately $17,500 more per year than their peers who only have a high school diploma (Pew Research Center). Unemployment is much lower amongst college graduates at 3.8% as compared to 8.1% for high school graduates. College is a long-term investment in the future, and any method that students can use to achieve that goal seems to balance out the potential costs of taking out a loan. Also, compared to a bank loan of the same equivalence, the student loan system does have its perks. Graduates do not have to worry about paying back anything until six months after their graduation date, and in comparison to an identical bank loan, a student loan has a much lower rate of interest, and they can be paid back in smaller amounts as well.

The reality seems to be pretty clear: it is very difficult to acquire a higher education without a loan. Though scholarships and other “free” financial assistance does exist, it is a rare person who can manage to pay for their entire education using just those methods alone. Students don’t want to have to live on a shoestring budget; it’s hard enough to get Taco Bell money as it is. We want that college degree, and it’s much simpler to take out a loan to pay our tuition expenses than it is to work four jobs and go to school full-time. Paying loans back seems like a futuristic concept, one that we don’t have to deal with until later. It’s not that loans all are bad; it’s that students often don’t know the consequences associated with not paying them back in a timely and responsible fashion. Loans aren’t scary; it’s paying them back that can be hard. However, know that you are not alone; there are 40 million of us out there is the same situation.